Disclaimer: Don't bet the farm on this method, however it is a simple approach to weeding out bad real estate investment deals and identifying which deals you should investigate further. We'll tuck this one away in our 'general rule of thumb' category.
Scenario: "lovely 5 bdrm duplex for sale in downtown area. close to all shops, offices, tim horton's, and zellers. act now, before it's gone. asking $150,000 firm. rents are 500 2bdrm, 600 2bdrm, and 350 1bdrm"
Apply 30 second calculation in 3, 2, 1...go!
Step 1. Take asking price and divide by 10
150,000 / 10 = 15,000
Step 2. Take the expected monthly income and multiply by 12
(500 + 600 + 350) * 12 = 17,400
17,400 > 15,000 ; therefore investigate further.
If the expected yearly income from the investment property is less than the expected expense then this should raise a red flag and you should re-evaluate this real estate investment opportunity. Remember, that this does not take into account the potential value of the unit.
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